The wider the distribution of an investment's returns over time, the ________ the expected average rate of return and the ________ the expected volatility of those returns.
A)higher; higher
B)higher; lower
C)lower; higher
D)lower; lower
E)The distribution of returns does not affect the expected average rate of return.

Question

Quizplus · Accepted Answer

The wider the distribution of an investment's returns, the higher the expected volatility because a wide distribution indicates a greater range of possible outcomes. However, the width of the distribution does not inherently affect the expected average rate of return; it primarily influences the volatility. The correct answer is chosen based on the relationship between distribution width and volatility, acknowledging a misunderstanding in the question's phrasing regarding the average rate of return.

The Wider the Distribution of an Investment's Returns Over Time